In 2008, when we last dealt with $4-a-gallon gasoline, many people were decrying the fact that no new oil refineries had been built in more than 25 years. Fast-forward to 2012 and we find oil refineries being shut down because the U.S. demand for gasoline has dropped by over a million barrels per day. Some of that is due to the recession, but more is due to market forces that increased the demand for fuel-efficient vehicles and the government increasing fuel-efficiency standards for new cars and trucks. During those same four years, not only has domestic crude oil production increased, but we have become a net exporter of finished gasoline and diesel fuels for the first time since Harry Truman’s presidency. In December, we exported nearly 10 percent of domestic consumption.
So why have our gasoline prices risen? There is an international demand for gasoline and the price we pay in the U.S. must match what other countries are willing to pay. Although this is bad news for drivers, it provides some jobs and increases the value of our exports.
Some politicians are clamoring to “drill baby, drill,” and build pipelines to lower gas prices. If we do increase oil production, it will just replace imported oil going to our refineries. But that won’t necessarily decrease the price of gasoline. Anyone running for office who claims they will decrease the price of gasoline had better explain how they intend to control world demand.